For most of my life I have not been politically active. However, I am becoming more so, and will be attending and participating in the Libertarian convention for the state of Iowa this coming weekend. Additionally, I found out today I was elected to be a “Precinct Committee Person to the Central Committee” for Des Moines Precinct 8 for the Polk County Libertarian Party. I’m not really sure what that entails. I guess that’s what I get for not showing up at the meeting when the vote was taken. Regardless, I will do whatever it is that I’m supposed to do, and probably overdo it.
I’m usually the one asking, “why?”, so I suppose I should also tell my “why”, as in why I identify as a Libertarian.
The biggest influence on my political beliefs has been the years working at Clarinda and Tarkio Academies. I have often said, “People who say the Peace Corps is ‘the toughest job you’ll ever love’ never worked at The Academy”. We worked at those facilities with juvenile delinquents who everyone else had given up on. We didn’t rehabilitate every one of them, or even close to a majority of them, but we had some success stories. We didn’t just say things like, “No one rises to low expectations,” “PRIDE is Personal Responsibility In Determining Excellence”, “Confront all negative behavior”, and “Natural consequence is the best teacher”, rather we lived those things every day. And we achieved more than anyone thought was possible. The more popular and commonly known version of that mentality is from Winnie the Pooh: “You are braver than you believe, stronger than you seem, and smarter than you think.” I believe all that stuff, deep down, about every U.S. citizen. And in some ways I feel sorry for those who don’t believe that way.
When I look at what the two major political parties do and advocate, I do almost feel sorry for them for not having that belief in people, but especially those who align with the Democratic Party. Across the board, the underlying message of all their social programs is, “people are worthless and weak. Without the government handling things for them, they will fail miserably.” Or, if they are advocating new social programs to “help” others succeed when they are themselves successful, I see that as pretentious and condescending, an attitude of, “well, I succeeded without __________ program, but others aren’t as good as me, so they need help”. And I put “help” in quotes because it is not really help. It’s enabling. The vast majority of government “help” for those who have less is the equivalent of buying another bottle of Thunderbird for the alcoholic who doesn’t have the money to buy more booze. As long as the government keeps handing out fish, there is not an incentive for those who don’t know how to fish to learn.
I can’t have a blog post get too serious and not have a musical interlude, so here’s some Talking Thunderbird Blues Can’t go wrong with Townes Van Zandt.
From a practical point of view, even if someone thinks all this “help” is good, I can’t wrap my head around how anyone can think that the government, especially the federal government, is the best way to provide that help on a local level. Which is what really matters. As my favorite author Robert Heinlein said, “An elephant is just a mouse built to government specifications”.
The response I almost always get when I disagree with someone promoting a government mandated social welfare program is something like, “You’re an uncaring, heartless, son of a bitch!” And the worst part is that they never get the cultural reference when I say, “When you call me that, smile”. Actually, that is not the worst part. The worst part of all of it is what government social programs do to us as a society. They make it ok to not help our neighbor. To not be “The Good Samaritan”. To stay home and gaze into our phones instead of going out and gazing into the eyes of someone who needs our help. When “help” is forcibly taken from citizens and distributed to others by the government (after the government has taken its cut, of course), it’s no longer a gift, and both the giver and the receiver of the gift are robbed of the beauty and joy of giving. That’s the biggest casualty of government social programs, and the biggest reason I am against them.
And for my Republican friends who have been enjoying what I said about the Democrats, now it’s your turn.
The Republican justifications and twisting of morality boggle my mind. The same people who chastised Bill Clinton for his affair with Monica Lewinsky idolize a serial adulterer who paid hush money to a porn star. Yeah, I know, “All have sinned and come short of the glory of God”. But don’t forget all the other stuff like, “Go and sin no more”, having a contrite heart, repenting, etc. And all the, “but ________ did/does it too!” How childish are you? Didn’t your parents ever teach you that two wrongs don’t make a right?
A huge appeal of the Libertarian Party for me is its stance regarding foreign wars. We need to mind our own business and concentrate on our own country. Republicans saying that we are protecting others from evil, give it a rest (that’s my cleaned up version of what I’m thinking). It’s about business interests, mostly oil. If it wasn’t, we’d be involved in a lot of other countries. “Don’t piss down my back and tell me it’s raining.”
All the “tax breaks for the rich” arguments between the two major parties miss the point. It’s not that the wrong or right people are getting tax breaks, it’s that those taxes shouldn’t be levied on anyone. I wasn’t around for it, but I think I read somewhere that we fought the British over something regarding that.
The bottom line is this: Democrats and Republicans are two sides of the same dirty coin. Both sides are power-hungry liars full of hate. They just tell different lies and hate different people. If you are saying or thinking, “But I’m not hateful! I’m not a liar!” then you’re probably aligned with the wrong party. Maybe you should join the Libertarians too.
Many people disdain the Libertarian Party, scoffing, “You’re throwing your vote away!” I don’t see it that way. I see it as disrespectful to the right to vote and those who fought to secure my right to vote to do anything but vote for who I think is the best candidate, regardless of party. A vote for “the lesser of two evils” is still a vote for evil. I refuse to vote for evil.
I also hear that it’s impossible to break the stranglehold the Democrats and Republicans have. Let me ask you. Do you know who Gunder Haag and Arne Andersson are? Probably not, but from 1942 to 1954, the two of them went back and forth as the world record holders for the mile run, and Hagg’s 1945 record of 4:01.4 stood for almost a full NINE YEARS! Why? Because until Dr. Roger Bannister did it, it was “impossible” for a human to run a mile in under four minutes. Do you know who Larry Owings is? Rulon Gardner? If you’re not a wrestling aficionado, probably not. But they proved that the “unbeatable” can be beaten. I’m a believer.
Contrary to what many today may think, not every POTUS belonged to either the Democratic or Republican Party. George Washington didn’t have an affiliation to a political party. Although every POTUS in my lifetime (so far) has been a Republican or Democrat, there has been a Federalist, Democratic-Republicans ( 4), Whigs (4), and National Union candidates (2) who ascended to the Presidency. There is no reason a Libertarian could not win the office, except for all the “group thinkers“ thinking “it’s impossible”.
Some of you may be thinking, “Sure, 200 or so years ago someone other than the Democrats or Republicans won, but we live in a different time”. You are absolutely right. For most of my life it has been virtually impossible for someone to break through and gain national/international recognition without lots of money and big business behind him or her. One had to have big record company backing to get music recorded and played on the radio. Being a movie star meant going to Hollywood and required getting in with a big movie studio, maybe via “couch auditions”. Being a published author was really only available through the big publishers. That’s not the case any more. Why couldn’t a politician of the Libertarian Party, or any other party, become a mega star using social media, YouTube, email, etc. It’s worked for every other aspect of pop culture, and what is politics, if not pop culture?
Since this is my “Insurance Nerd” blog, I need to bring it back to insurance. For this post, it’s pretty simple. Insurance is pretty darn Libertarian. I love freedom. With freedom comes responsibility. Insurance is a great way to keep our freedom by taking care of responsibilities. If I die prematurely, it’s not the government’s responsibility to take care of my obligations to support my family. Life insurance is the tool I use to fulfill my responsibility and assure their freedom. I take care of a small part my responsibility to take care of my health (the majority is diet and exercise, not insurance) by buying health insurance. And if I use insurance to responsibly fund my retirement, I paid for the freedom that comes with it.
Showing posts with label life insurance. Show all posts
Showing posts with label life insurance. Show all posts
Friday, February 28, 2020
Thursday, December 3, 2015
New Strategy For "Bridge" Health Insurance
Before Affordable Care Act (AKA "Obamacare") I often was asked to help find health insurance for people who were a couple of years from Medicare eligibility. Most often it happened when a husband retired at age 65 and his wife was younger, usually by a few years. Health insurance was easy for him because he was new to Medicare, and they could both collect Social Security if they wanted. It made sense of both of them to retire while they were healthy enough to travel extensively if they wanted to. Getting health insurance for the non-Medicare spouse required answering some health questions, but I could usually get her a decent rate by selling her a policy that excluded maternity and mental health coverage. It was a safe bet that she wouldn't get pregnant, and if she hadn't had mental health issues by her early 60's, the odds were against her developing them suddenly. I could get her a decent health insurance policy for around $200-300 per month. That was affordable and reasonable. Those days are gone.
Now for someone in the last few years before being eligible for Medicare, that "bridge" coverage costs two to three times as much because everyone is accepted regardless of health, and the policy has to cover maternity and mental health. That drives up the cost, making doing the things people want to do in retirement less affordable.
As much as I dislike it, I'm wondering if the best solution is to manipulate income in order to qualify for a tax subsidy to cover health insurance cost.
For example, an Iowa couple with an income of $50,000 with him on Medicare could get a monthly tax subsidy in the neighborhood of $150 per month for her health coverage (per this calculator, at least). If income is $40,000 instead of $50,000, the subsidy increases to just under $280. That doesn't mean the couple has to have $10,000 less to spend, it just means that they need to decrease INCOME by $10,000. There are lots of ways to do it. For example, take $10,000 more out of a savings account and take $10,000 less from his 401K. One of the screwy things about the ACA is that the subsidy doesn't care what you have for assets. You can be a billionaire in term of assets but still qualify for a subsidy if your "income" is low.
Just one more reason to have some assets (Roth IRA, life insurance cash value, etc.) that can be used without increasing "income".
Now for someone in the last few years before being eligible for Medicare, that "bridge" coverage costs two to three times as much because everyone is accepted regardless of health, and the policy has to cover maternity and mental health. That drives up the cost, making doing the things people want to do in retirement less affordable.
As much as I dislike it, I'm wondering if the best solution is to manipulate income in order to qualify for a tax subsidy to cover health insurance cost.
For example, an Iowa couple with an income of $50,000 with him on Medicare could get a monthly tax subsidy in the neighborhood of $150 per month for her health coverage (per this calculator, at least). If income is $40,000 instead of $50,000, the subsidy increases to just under $280. That doesn't mean the couple has to have $10,000 less to spend, it just means that they need to decrease INCOME by $10,000. There are lots of ways to do it. For example, take $10,000 more out of a savings account and take $10,000 less from his 401K. One of the screwy things about the ACA is that the subsidy doesn't care what you have for assets. You can be a billionaire in term of assets but still qualify for a subsidy if your "income" is low.
Just one more reason to have some assets (Roth IRA, life insurance cash value, etc.) that can be used without increasing "income".
Thursday, November 19, 2015
Dave Ramsey Is Wrong: Part 1
Tonight was the last night of Financial Peace University for my wife and I. If you aren't familiar with FPU, it's a class by Dave Ramsey, usually hosted by a church. Rather than misstate what they do, I'll quote his mission statement directly from his website. "Ramsey Solutions provides biblically based, common-sense education and empowerment that give HOPE to everyone in every walk of life." That's a pretty good mission statement. I admit, they do it very well. He's even better as a marketer, especially when it comes to knowing his target market and tailoring his message accordingly. I've learned much more watching his marketing than I have from the content of the class. I recommend taking it, even you are pretty knowledgeable regarding finances. The lessons are more about changing behavior rather than financial knowledge. Behavior trumps knowledge every time.
So why did I put "Dave Ramsey is wrong" at the top of this post? Partly because it will evoke an emotional response from a lot of people who read it. But mainly because as much is I like his stance on a lot of things (we both are big fans of HSA's and Roth IRA's, for example), he is wrong, contradicts himself, oversimplifies and/or uses too many absolutes on several topics. Which is why this post is only "Part 1".
Since life insurance is my favorite financial product, I'm starting there. From page 167 of Dave Ramsey's Complete Gude to Money ( book of less than 400 pages is a "complete guide to money"?) under the heading, "How Much Coverage?"
"You need to get coverage equal to ten times your income. So if you're working and making $40,000 a year, you need $400,000 The ten-times rule of thumb is not an arbitrary number. Remember, life insurance is designed to replace your income. If your surviving spouse invests that $400,000 in good mutual funds at an average 10-12 percent return, he or she could peel off $40,000 a year from that investment to replace your income without ever cutting into the principal."
Sounds great, doesn't it? It's easy to do the math. 10 x $40,000= $400,000. $400,000 x 10% plus $400,000 principal = $440,000 minus $40,000= $400,000 It very much reminds me of listening to a politician. We all stand up and cheer, and feel good. Unless we start thinking too much and see the holes. There are a lot of them.
Anyway, I do need to go to sleep so I don't put my family in a position of using my life insurance proceeds to provide their financial peace. One time of driving sleep-deprived was more than enough. (And I also recommend Dave Ramsey's book, More Than Enough--pun intended).
So why did I put "Dave Ramsey is wrong" at the top of this post? Partly because it will evoke an emotional response from a lot of people who read it. But mainly because as much is I like his stance on a lot of things (we both are big fans of HSA's and Roth IRA's, for example), he is wrong, contradicts himself, oversimplifies and/or uses too many absolutes on several topics. Which is why this post is only "Part 1".
Since life insurance is my favorite financial product, I'm starting there. From page 167 of Dave Ramsey's Complete Gude to Money ( book of less than 400 pages is a "complete guide to money"?) under the heading, "How Much Coverage?"
"You need to get coverage equal to ten times your income. So if you're working and making $40,000 a year, you need $400,000 The ten-times rule of thumb is not an arbitrary number. Remember, life insurance is designed to replace your income. If your surviving spouse invests that $400,000 in good mutual funds at an average 10-12 percent return, he or she could peel off $40,000 a year from that investment to replace your income without ever cutting into the principal."
Sounds great, doesn't it? It's easy to do the math. 10 x $40,000= $400,000. $400,000 x 10% plus $400,000 principal = $440,000 minus $40,000= $400,000 It very much reminds me of listening to a politician. We all stand up and cheer, and feel good. Unless we start thinking too much and see the holes. There are a lot of them.
- Where does the income come from for the first year? Unless you wait to take income until the mutual funds have earnings, you cut into the principal right at the beginning, so it's not $400,000 that is doing the earning. Your initial principal for the investment is $400,000 minus whatever you used to cover funeral expenses and all the other additional things that came up due to the death
- Dave Ramsey himself says in the same book on page 212, "Mutual funds make excellent long-term investments, but don't bother with them unless you can leave that money alone for at least five years. This where you park your money for the long haul, looking toward retirement". So what you're saying, Mr. Ramsey, is that if I die tonight then my widow should put my life insurance proceeds into a retirement investment and leave it there for at least five years? And during that five years the bill fairy will come and wave her magic wand and all the bills will be paid and my kids will have their college tuition covered?
- Page 211 says, "The average annual return from 1926, the year of the S&P's inception, through 2010 is 11.84 percent. Just keep in mind that's the eighty-year average.. Sure, within that time frame there are up years and some down years." Between now and 1970 there have been 9 years that the S&P has been down for the year, with the worst year (2008) down 37%. I wouldn't be comfortable betting my family's future on something that had approximately a 1 in 5 chance of dropping in value the same year I died. I don't call that "Financial Peace".
- If I am a good, ambitious person, I should expect to be making more money in the future than I am now, and a lot of the plans for my family expect that too. It doesn't give me financial peace thinking that if I died tonight then my family's income (assuming that I follow his plan and that the proceeds consistently earn 10% year after year in mutual funds, even though that has never happened) would never increase, that it would be locked at the same level it was on the day I died.
Anyway, I do need to go to sleep so I don't put my family in a position of using my life insurance proceeds to provide their financial peace. One time of driving sleep-deprived was more than enough. (And I also recommend Dave Ramsey's book, More Than Enough--pun intended).
Friday, October 23, 2015
My Ideal Customer
There's an old saying in the life insurance business. "There are only two reasons to buy life insurance; you love someone or you owe someone money", which is of course means that virtually everyone should buy life insurance. I agree with that, but that doesn't mean that everyone should buy it from me. As much as I would like to have the commission from that many life insurance sales, there are only 24 hours in the day, and I'm not a good fit for everyone. Just as there are many people who are great people individually but don't make a "love connection".
I don't often ask for referrals, but I get a lot of unsolicited ones. I love when it happens, because there's no better indicator that I am doing a good job for a customer than he or she telling friends and family about me. Most of the time it works great, but sometimes it's like an awful blind date. That doesn't mean to not refer someone if you're not 100% sure it will work out. I've been at this long enough that I'm not going to curl up in the corner and cry if I get rejected. But I am going to publish this list so people have a better idea of the likelihood of me being a good match.
Here are characteristics of my ideal customer. For me to be a good fit, we should match on at least a few of these.
That is far from being a comprehensive list, but it's a good start. They don't have to owe anyone any money, either. Dave Ramsey followers are just fine with me.
I don't often ask for referrals, but I get a lot of unsolicited ones. I love when it happens, because there's no better indicator that I am doing a good job for a customer than he or she telling friends and family about me. Most of the time it works great, but sometimes it's like an awful blind date. That doesn't mean to not refer someone if you're not 100% sure it will work out. I've been at this long enough that I'm not going to curl up in the corner and cry if I get rejected. But I am going to publish this list so people have a better idea of the likelihood of me being a good match.
Here are characteristics of my ideal customer. For me to be a good fit, we should match on at least a few of these.
- Positive Attitude
- Non Smoker (Ex-smoker is even better)
- Athlete/competitor/fitness and health-oriented
- Parent
- Goal-oriented/planner
- Self-employed
- Has connections for people to refer to me. A social person.
- Open-mind
- Critical thinker
- Passionate
- Cares about others
- Hates paying taxes
- Into self-improvement
- Odd/eccentric Rebellious
- Loves being outdoors
Wednesday, October 14, 2015
Frog and the Scorpion (Day 16)
In 1992 people were raving about the fable of the frog and the scorpion fable in The Crying Game, but I was thinking that it came from what I think is a much better movie, Skin Deep. If you aren't familiar with it, you can view it here. Or the Crying Game version here. However, it was actually first in a film in 1955, an Orson Welles film called Mr. Arkadin. Which probably stole it from something earlier.
Regardless of where it came from, it's still a lesson I'm continuing to learn. I'm getting better at my job as I'm realizing that people often act illogically. Sometimes I need to help them do that. I always say that what I sell is a good night's sleep, but I've been realizing lately that I sometimes put too much emphasis on doing what is logical.
I had several examples come up today. I talked to two different people who I could save some money by switching their health insurance to a different company. I told them briefly how they could save the money, etc. However, both of them expressed that they liked their current coverage, the premium is affordable, and that they felt safe and secure with their current company. A few years ago I would have pushed hard for them to make the change to save the money. Today, however, I reinforced them keeping their coverage as it is. I reinforced their decision, making sure that they continue to sleep well. That's the most important thing I do, even more important than saving them money. I had a similar conversation with a customer regarding life insurance. His kids have told him that he doesn't need to spend the money on life insurance. I've crunched the numbers and see that he could possibly pay more for the life insurance than it will pay out. It's not logical. But logic has nothing to do with it. He will sleep better tonight knowing that when he passes away, his family will receive a chunk of money without it having to go through probate, and it will be a quick and tax-free payout. Taking care of his family, that's his nature. And worth every bit he's going to pay.
Regardless of where it came from, it's still a lesson I'm continuing to learn. I'm getting better at my job as I'm realizing that people often act illogically. Sometimes I need to help them do that. I always say that what I sell is a good night's sleep, but I've been realizing lately that I sometimes put too much emphasis on doing what is logical.
I had several examples come up today. I talked to two different people who I could save some money by switching their health insurance to a different company. I told them briefly how they could save the money, etc. However, both of them expressed that they liked their current coverage, the premium is affordable, and that they felt safe and secure with their current company. A few years ago I would have pushed hard for them to make the change to save the money. Today, however, I reinforced them keeping their coverage as it is. I reinforced their decision, making sure that they continue to sleep well. That's the most important thing I do, even more important than saving them money. I had a similar conversation with a customer regarding life insurance. His kids have told him that he doesn't need to spend the money on life insurance. I've crunched the numbers and see that he could possibly pay more for the life insurance than it will pay out. It's not logical. But logic has nothing to do with it. He will sleep better tonight knowing that when he passes away, his family will receive a chunk of money without it having to go through probate, and it will be a quick and tax-free payout. Taking care of his family, that's his nature. And worth every bit he's going to pay.
Monday, October 12, 2015
(Almost) All Comebacks Are Possible (Day 14)
One of the reasons I prefere life insurance over all other products I work with is that it's the only catastrophe where a comeback is impossible. Once you're dead, you're dead. Life insurance prevents a personal disaster from also being a financial disaster.
Now that I've talked insurance, let's talk baseball! Today's finish was one of the best finishes that I didn't see. I didn't even get to hear Denny Mathews. Instead I got John Kruk and some other windbag the radio. The only good thing about it was that they were dead wrong when they declared the KC team dead after the Astros (when the heck did they move to the American League, by the way?) hit back to back homers and took a 6-2 lead in the bottom of the 7th inning. I saw this on my computer screen while the commentators went on and on about how great the Astros were and how the Royals were done, couldn't come back from this deficit, etc.
I hadn't realized that it was an afternoon game until I got a text from my friend Gary "The Carrot" Davis, with whom I watched most of last year's playoff wins at Buffalo Wild Wings. The way they had been hitting, I had my doubts about their ability to come back. I even texted Gary, "I guess I'll be saving $ and time from not watching. And more running miles". That text was at 2:55 p.m., as I was getting ready to head out the door to parent teacher conferences.
But before I left, the Royals quickly loaded the bases and had Lorenzo Cain at the plate with no outs. I listened on earbuds and got text updates as the Royals scored 5 in the inning to take 1 run lead into the bottom of the 8th. It wasn't easy, but I turned the radio off while talking to teachers, so I missed the 2 last inning insurance (see, I'm still talking about "insurance") runs supplied by Hosmer's homer.
Now I just have to figure out how to squeeze a couple of days of insurance work into tomorrow so I can enjoy most of Wednesday night's game 5 clinching win for the Royals!
Thursday, October 8, 2015
"How Much Did He Leave?" "All Of It" (Day 10)
Yesterday I wrote about what I see people do most often with retirement money, and said that instead of just complaining about their mistakes, I would offer some solutions. As I often say, this isn't insurance advice. Without sitting down with you and discussing the specifics of your situation, I can't make an informed recommendation. What I'm posting here is very general, something to use to open a discussion with me or another professional and figure out an action plan, not something to take action on right now.
People often tell me something along the lines of, "I want my money to run out the day I die, and the check to the funeral home to bounce". They understand the old saying of "You can't take it with you." However, they almost never actually spend their retirement money that way. Just like a business, 401 (k) and IRA plans should have an "exit strategy" from the beginning.
These are some possibilities that in many cases are better than holding on to tax-deferred money until it gets passed to beneficiaries or a nursing home.
People often tell me something along the lines of, "I want my money to run out the day I die, and the check to the funeral home to bounce". They understand the old saying of "You can't take it with you." However, they almost never actually spend their retirement money that way. Just like a business, 401 (k) and IRA plans should have an "exit strategy" from the beginning.
These are some possibilities that in many cases are better than holding on to tax-deferred money until it gets passed to beneficiaries or a nursing home.
- Start a guaranteed income stream from the retirement funds and use it to buy a life insurance policy. Often the best option is one that also provides a benefit if you need long term care. Advantages: Taxes on withdrawals are spread out over multiple years, and proceeds from life insurance to designated beneficiaries are not normally taxed. Depending on age, health, etc, life insurance benefit could be more than the value of the retirement savings, even not figuring in tax advantages. Depending on options chosen, beneficiaries may get both the life insurance benefit and more regular income. At least they won't get everything as taxable.
- Gradually convert to Roth IRA. You pay taxes on that part when you convert it, but it is later passed on without the taxes hitting all at once. With some planning, you can offset the amount you convert with other deductions so you pay little or no tax on the money. For example, I've had customers balance the Roth Conversion with deductions like large medical bills, HSA contributions, business losses/investments, work layoffs, etc. I haven't had anyone do it, but it would be ideal to take a year off work to travel, live off savings, and do a Roth Conversion to turn money that's never been taxed to money that will never be taxed. All without every paying any taxes on that money. Do this only AFTER consulting with a tax advisor. That's better than getting a surprise at tax time, and if the tax advisor is good, he or she often has ideas on how to do it even better than you and I think of doing it.
- Give it directly to a charity each year.
- Give a portion as gifts to family each year, paying a small amount of or no tax as you go. With both this and the charitable giving, you get to see the benefits of your gifts, which is a lot better than saving on taxes. They might even take you out fishing or water skiing on their new boat.
Sunday, April 11, 2010
Keeping the Family Farm in the Family
I hope to keep my family's farm in my family, so I recently have been much more attune to happenings in agriculture. I have especially been reading online since learning that a couple of my friends (Jeff Caldwell, the husband of one of my wife's co-workers, and Mike McGinnis, a guy who went to my high school and was a wrestling, football and tennis team mate) do a lot of writing on the subject. An article Jeff posted this week, Have The Talk, was especially relevant to me both personally and professionally. You can read it here. http://www.agriculture.com/ag/story.jhtml?sssdmh=dm17.441916&storyid=/templatedata/ag/story/data/1270571788119.xml
"Consecutive ownership within the same family for 100 years or more of at least 40 acres of the original holding of Iowa farmland" is the eligibility guideline to be considered a Century Farm according to the Iowa Department of Agriculture. Many family farms fail to reach this milestone because the family fails to "have the talk" about passing the ownership from one generation to the next. Jeff's article helps get that ball rolling. As with any business succession, people often worry about problems that might arise and use that as an excuse to not discuss it, but the potential problems are minute compared the the real problems caused by lack of a plan when a business owner dies or has an unexpected health crisis. When no plan exists, often the business or farm has to be sold to someone outside the family.
Life insurance shows its incredible power when used properly as a tool to facilitate transferring ownership of a farm. It can solve a lot of "what ifs".
What if Dad and/or Mom dies unexpectedly and the next generation is too young to take over? The death benefit can be used to keep the farm running with hired help or to replace lost income while a renter farms the land until the kids are ready to take it over.
What if only one of several children wants the farm? How can the estate be settled fairly? If "the talk" reveals this situation, life insurance can help form a fair solution. Without life insurance, at the time of death it's not unusual for the ones who don't want the farm to demand that it be sold so they can get their shares of the estate. Unless the one who wants it has the capital available to buy it, the farm often ends up being bought by someone outside the family. If the one who wants the farm buys a life insurance policy on the owner, he or she would have the money to buy out siblings at the time of death, and it's fair because he or she has invested his or her own money into the life insurance. Depending on the situation (which should be discussed with a qualified tax advisor), the premiums could potentially be considered a business expense. Another benefit of this route is that depending on the type of policy, etc., the cash value in the life insurance could be used to purchase of the farm before the owner's death if wanted.
What if multiple children want the farm? How can the estate be settled fairly then? This is a much tougher question, one that just having a life insurance policy won't cure. One person using the strategy above would have the upper hand since the money would give him or her a lot of bargaining power, but that scenario would lead to a lot of bickering. This is the scenario where "the talk" is going to be most difficult, but also will do the most to prevent future problems.
What if the owner(s) become sick or disabled and/or have to go into a nursing home? On the surface, it doesn't sound like this is a job for life insurance. The best option to cover this possibility would be a separate disability and/or long term care policies, but sometimes the best option isn't possible. The right life insurance policy can do double or triple duty if the added cost of a second or third insurance policy isn't affordable or if age or a health issue makes it impossible to qualify for coverage. Many life insurance policies have more lenient underwriting than long term care or disability coverage because the life insurance is more predictable. The amount of "death benefit" they pay out for terminally ill or disabled policyholders before their death is a defined amount, not an ambiguous number based on how long someone is unable to work. The money paid out could help pay for the cost and/or buy the farm before the owner "buys the farm".
These are just a few of the ways life insurance can be used to keep the family farm in the family. It all starts with a family discussion, but once that is done, make sure you include your life insurance agent (along with a tax advisor and attorney as the bare minimum professional team).
"Consecutive ownership within the same family for 100 years or more of at least 40 acres of the original holding of Iowa farmland" is the eligibility guideline to be considered a Century Farm according to the Iowa Department of Agriculture. Many family farms fail to reach this milestone because the family fails to "have the talk" about passing the ownership from one generation to the next. Jeff's article helps get that ball rolling. As with any business succession, people often worry about problems that might arise and use that as an excuse to not discuss it, but the potential problems are minute compared the the real problems caused by lack of a plan when a business owner dies or has an unexpected health crisis. When no plan exists, often the business or farm has to be sold to someone outside the family.
Life insurance shows its incredible power when used properly as a tool to facilitate transferring ownership of a farm. It can solve a lot of "what ifs".
What if Dad and/or Mom dies unexpectedly and the next generation is too young to take over? The death benefit can be used to keep the farm running with hired help or to replace lost income while a renter farms the land until the kids are ready to take it over.
What if only one of several children wants the farm? How can the estate be settled fairly? If "the talk" reveals this situation, life insurance can help form a fair solution. Without life insurance, at the time of death it's not unusual for the ones who don't want the farm to demand that it be sold so they can get their shares of the estate. Unless the one who wants it has the capital available to buy it, the farm often ends up being bought by someone outside the family. If the one who wants the farm buys a life insurance policy on the owner, he or she would have the money to buy out siblings at the time of death, and it's fair because he or she has invested his or her own money into the life insurance. Depending on the situation (which should be discussed with a qualified tax advisor), the premiums could potentially be considered a business expense. Another benefit of this route is that depending on the type of policy, etc., the cash value in the life insurance could be used to purchase of the farm before the owner's death if wanted.
What if multiple children want the farm? How can the estate be settled fairly then? This is a much tougher question, one that just having a life insurance policy won't cure. One person using the strategy above would have the upper hand since the money would give him or her a lot of bargaining power, but that scenario would lead to a lot of bickering. This is the scenario where "the talk" is going to be most difficult, but also will do the most to prevent future problems.
What if the owner(s) become sick or disabled and/or have to go into a nursing home? On the surface, it doesn't sound like this is a job for life insurance. The best option to cover this possibility would be a separate disability and/or long term care policies, but sometimes the best option isn't possible. The right life insurance policy can do double or triple duty if the added cost of a second or third insurance policy isn't affordable or if age or a health issue makes it impossible to qualify for coverage. Many life insurance policies have more lenient underwriting than long term care or disability coverage because the life insurance is more predictable. The amount of "death benefit" they pay out for terminally ill or disabled policyholders before their death is a defined amount, not an ambiguous number based on how long someone is unable to work. The money paid out could help pay for the cost and/or buy the farm before the owner "buys the farm".
Examples
Here are some "real number" examples of how life insurance could be used as part of the transfer of ownership plan.
Young farmer (25)with middle-aged parent (50--this is middle-age in my book since I'm not there yet): To purchase $250,000 coverage, assuming Dad is a standard rating, the cheap route to go would be term insurance, which would cost around $1,000 a year (conservative estimate--could be lower depending on health) for a 20 year policy. Then Dad would be 70 and son would be 45, where there's a good chance the son would be taking over anyway. For about three times that premium cost, he could buy a return of premium plan, where it would pay the same death benefit, but at the end if Dad was still alive, he could get back everything he'd paid in, about $60,000, which could be used as part of the money needed to buy him out. Or for about $3,000 per year he could buy permanent insurance guaranteed until Dad was 120 (and Son is 95). There are also numerous other possibilities depending on wants and needs, policies that would pay for long term care, would build large amounts of cash value, etc.
Middle-aged child (50) with older parent (70): Believe it or not, there are 20 year term policies available on healthy 70 year-olds. A standard rated male could get $250,000 coverage for about $8,000 a year, guaranteed for 20 years. The downside is that if he lives past 90 the rates jump quickly and before long the premium paid over the years will be more than the $250,000 death benefit. A permanent policy would be a much better option here, with only a slightly higher premium.
These are just a few of the ways life insurance can be used to keep the family farm in the family. It all starts with a family discussion, but once that is done, make sure you include your life insurance agent (along with a tax advisor and attorney as the bare minimum professional team).
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